Treaty relief for fiscally transparent LLPs applies where income is taxed in the residence State, even through partners.

A UK limited liability partnership carrying on legal services was treated as eligible for India-UK treaty relief where the relevant income was taxed in the UK in the hands of its partners. The Tribunal held that treaty residence depends on whether the income is liable to tax in the residence State, not on whether tax is collected from the entity or through pass-through taxation. On that basis, denial of treaty benefit on transparency grounds was rejected, and the alternative contention that the receipts were fees for technical services did not survive once treaty protection applied.

---

---

Issues: Whether the assessee, a UK limited liability partnership, was entitled to the benefit of the India-UK tax treaty for the portion of its income from Indian engagements that had been taxed in the UK in the hands of its partners, and whether such receipts could be taxed in India as fees for technical services.

Analysis: The assessee was a UK-based LLP carrying on legal services and was treated as fiscally transparent in the UK, with its income subjected to tax in the hands of its UK-resident partners. The Tribunal followed its earlier decision in the assessee's own case and the line of authorities holding that what is material for treaty entitlement is whether the relevant income is taxed in the residence State, and not the precise mode by which such tax is collected. On that basis, the assessee was held to satisfy the treaty requirement of being a resident of the contracting State for the income in question, and the Department's attempt to deny treaty benefit on the ground of pass-through taxation was rejected. The related contention that the receipts were taxable as fees for technical services did not survive once treaty benefit was found available.

Conclusion: The assessee was held entitled to claim benefit under the India-UK tax treaty for the relevant Indian-engagement income, and the Revenue's treatment of that income was set aside.

Final Conclusion: The appeal was allowed on the core treaty-eligibility issue, with the penalty ground left to separate proceedings.

Ratio Decidendi: A fiscally transparent foreign partnership or LLP is entitled to treaty benefits where the relevant income is liable to tax in the residence State, even if the tax is recovered in the hands of the partners rather than the entity itself.

---